Online Remittance Doubles as a Tool to Combat Fraud

Offering remittance services through the Web can help banks simplify execution and fight fraud, according to payments executives and analysts.

Online remittance "is like having an exclusive club. The banks are the ticket takers and security guards. And the only people that can get into this club are legitimate," said James Van Dyke, the president of Javelin Strategy and Research.

Wells Fargo & Co., which expanded its ExpressSend remittance service to the Web in September, hopes the offering will combine easy authentication with additional customer retention strategies, such as reaching growing demographic groups among new arrivals in the U.S. and enhancing self-service.

"When someone gets an urgent call from a relative in Mexico who has an emergency and needs money, you can quickly transfer the money from home or work. You don't have to initiate the transfer over the phone or wait for banking hours to go through the process," said Daniel Ayala, a senior vice president and the head of global remittance services for Wells Fargo, which developed the online service internally.

Consumers will be able to send remittances anytime to countries including Mexico, El Salvador, Guatemala, India, the Philippines, Vietnam and China. The service features e-mail notification, access to up to 18 months of transaction history and detailed alerts — with account-to-account, account-to-cash and cash-to-account payments available.

"There's a preponderance of this segment that's already online, so it's a natural fit. Foreign-born immigrants often keep up with news back home through the Internet, and they use VOIP and messaging-type technology to stay in touch with their families," Ayala said.

Wells Fargo charges a flat fee for the service (generally around $10 per transaction), though the banking company may tailor pricing in the future as it analyzes customer use.

Wells Fargo hopes to sell its authentication and execution as easier than online remittance payments with nonbanks; the service require users to navigate through three screens and transactions an be completed in a few minutes. Nonbank online remittance payments typically involve some combination of card and ACH debits, and sometimes raise red flags if the card issuer suspects a large wire transfer is part of a card-theft scheme. That can delay settlement and create extra steps as senders authenticate themselves.

"With the Wells service, you avoid that," said Gwenn Bezard, a research director at Aite Group LLC in Boston. "Wells Fargo controls the checking accounts, so they can get people authenticated when they sign up for online banking."

Western Union Co. also offers online remittances. Users create a profile and undergo an authentication process similar to online retail purchases.

A user's first transaction takes about 10 minutes and subsequent remittance payments take about five minutes. Western Union has signed online remittance deals with North American banks including Scotiabank Group and Fifth Third Bancorp.

MoneyGram International Inc. also offers online remittances.

Other banks offering online remittance services include Citigroup Inc., which features a mix of global transfers to Citi accounts outside the United States, interbank and online transfers for fees of $8 to $30.

Some mobile phone companies, Nokia Corp. are positioning themselves to provide real-time mobile remittance payments by connecting unbanked populations with consumers who do have bank relationships, a strategy that is part of Nokia's investment in Obopay Inc.

But there are other barriers facing banks looking to tap online remittance. The scale required means it is a market that likely is open only to the largest banks.

Gareth Lodge, an analyst for TowerGroup, said the online remittance market has "massive" potential, but he said remittance customers may not be the most loyal, making it harder to use online remittance as a retention tool. (TowerGroup, a unit of MasterCard Inc., is in the process of being sold.)

"These customers are sophisticated and monitor foreign exchange rates on particular days to get the best rate, so there will be a lot dropping and account changes among customers," Lodge said.